Constellation Brands Inc.’s move into the marijuana business makes strategic sense and will give the company a first-mover advantage in the weed market that will complement its leading role in the booze market.

That’s the view of Wells Fargo analyst Bonnie Herzog, who reiterated her outperform rating on Constellation Brands’ stock on Monday and said it remains her favorite beverage stock pick.

Drinkable marijuana is a small but growing part of the North American legal market, which is worth about $8 billion today, according to cannabis research company ArcView Group, and expected to grow to about 23 billion by 2021.

“Overall, we think this deal makes a lot of sense—there has been an ongoing concern about the potential negative impact on beer/wine/spirit sales from the state-level legalization of marijuana that has already occurred in the U.S., and this gives STZ a clear first mover advantage in insuring that it remains not just the leading Total Alcohol Beverage Company, but indeed, the Total Alcohol-Marijuana Beverage Company,” Herzog wrote in a note.

Constellation Brands is paying $190 million for the stake with options to acquire an additional 9.9% in equity in the future via warrants at the same price. The deal is expected to close in early November.

GMP analysts led by Martin Landry said the move is the first big investment by a public multinational in the cannabis industry and confirms the substance is viewed as a threat by alcohol companies. GMP is expecting other companies to follow suit.

For Canopy, the move removes a financing overhang, and gives the company access to significant resources in marketing and brand building.

“Today’s announcement catapults WEED in a league of its own,” the analysts wrote in a note. “The company now has significant financing to accomplish its aggressive expansion plans.”

The company is not planning to market the products in the U.S. market for now, but if recreational marijuana were to be legalized as advocates are hoping, it would expand sales to the U.S.

Marijuana is legal for medical use in 29 U.S. states and legal for recreational use in 8 states plus Washington, D.C. It remains illegal at the federal level, however, where it continues to be classified as a Schedule I drug, which puts it in the same category as heroin, LSD and ecstasy.

The federal ban has complicated efforts to grow the market, as those who are active in the business are unable to have bank accounts, which would be subject to federal supervision and insurance.

“The U.S. cannabis market is probably the largest in the world and it is frustrating for the CEOs who operate in the space that we are losing that opportunity for global first-mover advantage,” said Derek Peterson, chief executive of Terra Tech, a cannabis-focused agriculture company.

President Donald Trump’s Attorney General Jeff Sessions is a known opponent of relaxing the law. “Good people don’t smoke marijuana,” he is on record as saying. Sessions has urged U.S. attorneys to seek the highest possible penalties in drug cases, raising fears he is attempting to reignite the “war on drugs” policy that is widely viewed as an abject failure.

Meanwhile, Canada’s more relaxed approach has allowed Canopy Growth to become one of the world’s biggest publicly traded cannabis companies. The company had revenue of C$39.9 million ($31.1 million) in the year through March 31, up from C$12.7 million in the year-earlier period.

Canadian companies have access not just to bank accounts, but to investment banks, giving them the means to tap capital markets.

Terra Tech has raised $66 million in capital to fund its business, “but if we had Morgan Stanley and Goldman Sachs capital raising for us, we could scale up a lot quicker and more efficiently,” said Peterson. “If the U.S. market had federal support, we would have companies with $100 million market caps, we’d have M&A and IPO activity.”

Peterson is confident legalization will happen some time, even if it takes another change of administration. The U.S. public is increasingly supportive of the industry with 64% of those surveyed in a recent Gallup poll saying its use should be made legal, the highest level of support that Gallup has recorded in nearly 50 years of measurement.

“This industry is growing and outpacing smartphones -- and it is completely U. S.centric: The entire supply chain is here so the economic effects are immediate,” said Peterson.

In the U.S. states where weed is legal, state legislatures have welcomed the tax revenue it generates. Colorado, for example, said in July it has earned $500 million in taxes and fees from legalization, money it has used to fund education, as well as substance abuse and prevention programs.

Canopy Growth shares have gained 59% in 2017. Constellation Brands has gained 39%. The S&P 500
SPX, -0.55%
has gained 15% and the Dow Jones Industrial Average
DJIA, -0.67%
is up 18%.

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